MARI: Documentation key in fighting mortgage fraud

HERNDON, Va. – The broader credit crunch of recent months has caused mortgage fraud to be seen as “a secondary issue,” the Mortgage Asset Research Institute (MARI), a ChoicePoint Asset company, wrote in its 10th annual report to the Mortgage Bankers Association. But “our assertion is that fraud and the role it played in our current market environment must command greater attention, especially if we intend to boost investor confidence in non-conforming mortgage-backed securities.”

The most common types of fraud reported in 2007 were in employment history and claimed income – the same as the year before, though reports of undisclosed debts, liens or judgments rose 50 percent compared with 2006, the trade group said.

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“Rising real estate values over the past few years threatened to price new homebuyers out of the market and led some to attempt purchases before they were creditworthy,” the report states. “The higher valuations also led some individual real estate investors to speculate and stretch the truth on applications for multiple properties, especially in active markets such as Florida and Nevada” – the states that were No. 1 and 2, respectively, for mortgage fraud in 2007, based on reports to the Mortgage Industry Data Exchange (MIDEX).

“They were aided in this tactic by industry professionals who hoped that any future loan problems would be covered by a profitable sale of the collateral. Credit standards were loosened. More importantly for fraud, documentation requirements were also reduced,” a factor long associated with “fraud and sour consequences,” the report said. Many prime and non-conforming loan delinquencies are turning out to involve properties the buyers said would be owner-occupied, “but were, in fact, rental properties at the outset,” the trade group said.

Going forward, MARI said, “As the industry moves closer to e-mortgages – in the goal of wringing out costs and time between application and closing – there will also be a need to make better credit decisions in less time. What is critical in this next evolutionary step is to incorporate identity risk-management and data-validation services.”

The company today rolled out a new Loan Fraud Alert Service (LFAS) that aims to help lenders and investors identify both hidden relationships among transaction parties and patterns of fraud. “Fraudsters are taking advantage of the fact that some lenders do not have the capability to compare the details of all pending transactions,” Tom Chmielewski, ChoicePoint vice president of product marketing said in a statement. “By incorporating LFAS into their business solutions, lenders will now have the ability to compare that data against other contributing lenders' loan data.”

Mortgage applications fell in the first week of March, after rebounding the week before, the MBA wrote in a separate report. (READ MORE)

The Mortgage Asset Research Institute (MARI), a ChoicePoint Asset company, is a provider of mortgage-fraud data, analysis and loss-mitigation services. Additional information, including MARI’s 2007 report to the Mortgage Bankers Association, is available at www.MARI-Inc.com.